Globalisation

• globalisation

  a process by which economies have become increasingly integrated and interdependent through global networks of trade, capital flows and the rapid flow of technology and global media
• main characteristics

  • increased international movement of labour
  • increased international movement of financial capital
  • increased specialisation
  • increased international trade
  • increased trade to GDP ratios
• multinational corporations (MNCs)

  firms which function in at least one other country aside from their country or origin
• factors which attract MNCs to invest in a country

  • availability of cheap labour and raw materials
  • good transport links
  • access to different markets
  • pro-foreign investment government policies
• causes of globalisation

  • trade liberalisation (reduction/removal of tariffs)
  • containerisation (use of standardised containers to transport goods efficiently across different modes of transport – ship, rail, and road – without the need to unload and reload the cargo) - reduces transport costs and increases speed
  • economies of scale
  • increased number of MNCs
  • growth in international trading blocs
  • more international specialisation
• comparative advantage

  when firms specialise and produce goods in which they have the lowest opportunity cost global output will increase
• benefits

  • increased output (specialisation - theory of comparative advantage)
  • economies of scale - lead to lower production costs
  • could pass on as lower prices for consumers
  • greater choice of goods
  • World GDP has risen - economic growth (eg increased efficiency = increased output = growth)
  • improves living standards
  • reduces the levels of absolute poverty in the world
  • increase in output increases jobs - increase in employment
  • lower prices due to more competition
• disadvantages

  • economic dependency - some countries become too independent on each other - can lead to instability
  • price of some goods will increase - increasing world incomes = increased demand = when supply is unable to meet demand the rationing function of the price mechanism will increase prices
  • global imbalances in balance of payment accounts e.g USA have large deficits and China have large surpluses
  • specialisation can lead to overreliance/overdependency
  • domestic firms / infant industries can be outcompeted by foreign firms and go out of business
  • risk of structural unemployment
  • tax avoidance - transfer pricing - producing on countries with lower corporation tax
  • environmental costs
  • increases inequality
• FDI

  an investment made by a firm in one country into a firm in another country to gain control over a foreign firm
• positives of MNCs

  • job creation - brings new skills and wealth to developing economies
  • benefit from economies of scale
  • employment increases living standards
• negatives of MNCs

  • exploitation of workers - low wages , bad working conditions e.g Nike in 1990s India
  • can force local firms out of business
  • can relocate rapidly leading to mass structural unemployment -Workers may struggle to find new jobs because their skills don’t match other industries
  • profit shifting - they can withdraw profits from one country to another with low tax rates e.g Apple used tax loophole in Ireland - now owe 13 billion euros
  • can use their economic power to reduce choice and increase prices
  • Govs may be forced to reduce corporate tax levels to attract or keep MNCs in their country
• environmental degradation

  • international trade - more international transportation of goods - more fossil fuels - climate change - resource depletion
  • rising global demand = rising production levels = increased carbon emissions
  • deforestation - clearing forests for factories
  • increasing depletion of other non-renewable resources e.g metal ores
• evaluation

  • MNCs can bring extra tax rev to both developed and developing economies but regulation is often needed to monitor transfer pricing / profit shifting to make sure governments don't loose out on revenue imposing sufficient regulation can be costly
  • contrast short-term benefits (jobs, investment) with long-term risks (dependency, unemployment). eg U.S. rust belt: When manufacturing jobs moved overseas, cities like Detroit facedlong-term unemployment and economic decline.
• transfer pricing

  Transfer pricing is the price that one part of a multinational company charges another part of the same company for goods or services.

  🧠 Simple explanation:

  a big company like Apple has branches in different countries — one in the USA and another in Ireland.

  If the U.S. branch sells computer chips to the Irish branch, it has to decide what price to charge. That price is the transfer price.

  💸 Why does this matter?

  Because companies might use transfer pricing to reduce their tax bill.

  For example:

  • The U.S. has high taxes, but Ireland has low taxes.
  • Apple might set a low price for the chips sold from the U.S. to Ireland.
  • That way, the profits show up in Ireland, where tax is lower.

  👉 This is legal if done fairly — but if a company manipulates prices to avoid tax, it can be seen as tax avoidance (or even illegal in some cases).
• negatives of globalisation for developing economies

  • most profits of MNCs return to home countries - doesn't help tackle poverty and may increase inequality
  • skilled workers often leave to work in more developed countries - reduces emerging country's potential for economic growth
  • local companies may suffer
  • MNCs can exploit labour with low wages
• positives of globalisation for developing economies 


  • creates jobs, reduces unemployment
  • can create skilled , relatively well-paid jobs - more reliable income
  • MNCs can bring more efficient production methods and technology to developing countries - positive knock-on effects on their productivity and economy
  • increase in investment through FDI
• negatives of globalisation for developed economies 


  • cheap overseas production of goods in countries like Vietnam leads to structural unemployment in developed countries
  • e.g cheap clothes from Bangladesh have led to collapse of textile industry in UK
  • such collapses lead to deindustrialisation - further impacts - fall in exports
  • increased level of imports - negative balance of payments
  • emerging economies share of global GDP has increased at expense of more developed nations
• positives of globalisation for developed economies 


  • greater access to cheap raw materials - reduces production costs of domestic goods
  • MNCs gain access to cheap labour - lower production costs -lower prices for consumers